13 February 2018

Business SA is calling for the next State Government to stop penalising successful businesses with uncompetitive payroll tax rates, by increasing the threshold at which it is applied, and reducing its rate.

Business SA Executive Director, Industry and Government Engagement Anthony Penney says members consistently tell us that payroll tax is a significant disincentive to employment in South Australia, particularly for small businesses just under the existing $600,000 wage threshold.

“South Australia has the lowest threshold at which payroll tax kicks in for small businesses nationally, and we would like to see it abolished completely, or lifted to $1.5 million to ensure our state can be more competitive,” Mr Penney said.

“We want to make more businesses competitive, and that also means lowering our rate of 4.95 per cent to 4.5 per cent, to ensure South Australia has most supportive payroll tax rate in the nation.”

Business SA is today releasing its payroll tax pre-election plan, which includes recommendations to make South Australian businesses more competitive and better able to create sustainable jobs, boosting the state’s employment rate and our economy.

Business SA’s four payroll tax priorities are:

RECOMMENDATION 1 - Lift the payroll tax threshold from $600,000 to $1.5 million and reduce the rate from 4.95% to 4.5% by 1 July 2020, to ensure South Australia has the most competitive payroll tax structure of any state.

RECOMMENDATION 2 - In reducing the payroll tax rate to 4.5% by 1 July 2020, ensure the rate is only available to companies which either move to, or retain their headquarters in, South Australia.

RECOMMENDATION 3 - Introduce a payroll tax incentive for Science, Technology, Engineering & Maths (STEM) PhD graduates to increase collaboration between universities and business, with an exemption equivalent to 200% of wages.

RECOMMENDATION 4 - Re-introduce the payroll tax exemption for wages paid to apprentices and trainees.

Mr Penney said South Australian businesses were competing against neighbouring states with lower power bills and water prices, which made the cost of doing business in South Australia disadvantageous at times.

Business SA recognises the State Government needs to collect adequate revenue to fund high quality essential services such as healthcare, education and law and order, but revenue must be collected in a manner which has the least impact on jobs and economic growth.

According to the 2010 Henry Tax Review and the 2015 Tax White Paper, for every dollar raised from an efficient tax like the GST, there is less drag on economic growth compared to an inefficient tax such as payroll tax or stamp duty. This is largely because efficient taxes are drawn from a much wider and less elastic base.

Payroll tax penalises businesses which employ more people compared to those employing fewer, and further hurts businesses which take on more staff when economic opportunities arise or conditions improve.

In Business SA’s June Quarter 2017 Survey of Business Expectations, when asked whether the State Government should focus on payroll tax relief ahead of jobs grants programs such as the Jobs Accelerator Grant, more than two thirds of businesses advised “yes”.

“Our members tell us that payroll tax is a tax on growth and a disincentive to invest,” Mr Penney said.

Business SA is calling for a payroll tax incentive for businesses employing STEM PhD graduates, to make it easier for the business community to employ our state’s best and brightest, and stop the flood of talented young people heading interstate or overseas.

Business SA has long been calling for a tax system which better incentivises collaborations between universities and business, beyond the current research and development tax incentive, and a STEM incentive would enable that.

Many SMEs are unaware of the technical capability and expertise within universities and are unsure how to engage with a university. Steps need to be taken to break down those barriers to help our economy realise the benefits from collaborations, particularly to improve
industrial/manufacturing processes, and to help develop new products and services.

Business SA is also calling for the next State Government to re-introduce a payroll tax exemption for wages paid to apprentices and trainees.

“Our members are telling us that it’s costly to take on an apprentice or trainee because of the time spent teaching them their trade on the workshop floor,” Mr Penney said.

“If a payroll tax incentive was given to their employers, it would mean more tradies would be able to find jobs at the end of their courses, and more businesses could survive the additional impost of taking them on.”

For further details and case studies, please view our Payroll Tax Policy document. 

Please contact Verity Edwards to arrange an interview.